Portfolio Margin

DEFINITION of 'Portfolio Margin'

The modern composite-margin requirements that must be maintained in a derivatives account containing options and/or futures contracts. Portfolio margin accounting requires a margin position that is equal to the remaining liability that exists after all offsetting positions have been netted against each other.

For example, if a position in the portfolio is netting a positive return, then it could offset the liability of a losing position in the same portfolio. This would reduce the overall margin requirement that is necessary for holding a losing derivatives position.

BREAKING DOWN 'Portfolio Margin'

Portfolio margin requirements have only been recently instituted in the options market, although futures traders have enjoyed this system since 1988. This revised system of derivative margin accounting has freed up millions of dollars in capital for options investors that previously was required for margin deposits under the old strategy-based margin requirements that were instituted in the 1970s.

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